National Australia Bank Ltd v Market Holdings Pty Ltd [2000] NSWSC 1009 | Case summary

JUDGMENT 1 HIS HONOUR: The plaintiffs, National Australia Bank Ltd ("NAB") and National Markets Group Ltd ("NMG"), seek a declaration that the purported meetings of creditors of Market Holdings Pty Ltd ("the Company") held on 18 and 28 September 2000 were invalidly convened and that all proceedings at the meetings, including all resolutions passed at the meetings, are void by reason of the failure to give notice to NAB and NMG. A further declaration is sought that the second defendant, Mr John Sheahan, has not been validly appointed as the liquidator of the Company. Consequential orders are also sought. 2 The Company is incorporated in New South Wales. It is the second plaintiff in proceedings 50113 of 1998 and 50026 of 1998 brought against NAB and NMG and others, the final hearing of which has commenced in the Commercial List in this Division. I will refer to these as "the Commercial List proceedings". The Company and its co-plaintiff claim damages in the range of $8.3 - $29.3 billion dollars (US). The damages claim of the Company is not clearly particularised. On 20 March 2000 NAB filed an amended cross claim in the Commercial List proceedings claiming $31,000,000. 3 In addition to its cross claim, NAB has the benefit of an order for costs made in its favour by Rolfe J in the Commercial List proceedings on 9 July 1999 against both plaintiffs to those proceedings. However, the plaintiffs to those proceedings have also obtained certain costs orders against NAB and NMG in those proceedings. In particular, in one case, the plaintiffs in those proceedings have assessed their costs at $42,602.56. There are objections to part of this bill, but $28,048.17 is not the subject of objection. No costs assessor has yet determined the disputed costs. 4 The major asset of the Company is its claim against NAB. The plaintiffs say that the Company's major liability is the cross claim by NAB. The evidence shows that the Company has two other creditors; Investors Buying Services Pty Ltd owed $26,520 and John Maconochie owed $107,233. However, there is evidence that those two creditors have at some stage assigned their debts to a third party. 5 On 7 September 2000, Mr Maconochie signed a notice of meeting of members to consider a special resolution that the Company be wound up voluntarily. This notice was not posted to the members, but was handed to them or their representatives. 6 On that day, the Company lodged with ASIC some notification of that fact and also notice of a creditors' meeting to consider voluntary winding up and a report as to the Company's affairs made by its directors. On Saturday 9 September 2000, the appropriate notice of the creditors' meeting appeared in the Sydney Morning Herald. It seems that it appeared under "Public Notices" though the copies of the relevant page of the Herald which is in evidence give more prominence to the heading "Boating". 7 Although, there was no admission of fact in this part of the case, the evidence convinces me that no-one of status in NAB in fact read the notice in the Sydney Morning Herald, nor was it brought to his or her attention. I am further satisfied that no notice of the meeting of creditors was given to NAB or NMG. 8 At 10.00am on 18 September 2000, the members of the Company met. The minutes say that "The Chairman noted that the attendees at the meeting were of the members of the company holding together not less than 95% of the votes that may be cast", and the meeting purportedly resolved "that pursuant to the Corporations Law the required notice period for the calling of this meeting be waived". The minutes further say that it was resolved by special resolution to place the Company in voluntary liquidation and to appoint Mr John Sheahan as liquidator. 9 The creditors' meeting was held at 10:30am on 18 September 2000 and present were Mr John Maconochie representing himself and Mary Maconochie representing the other creditor. The minutes say that the notice convening the meeting was read and that the creditors agreed and the chairman (Mr Maconochie) determined that the meeting was held at a time and place convenient to the majority in value of the creditors. The meeting agreed that Mr John Sheahan should be the Company's liquidator. 10 I should note that a further alleged creditors' meeting was purportedly held on 28 September 2000. However this must stand or fall with the first meeting. I should also note that this second meeting, if it had to be considered on its own, might have been affected by the fact that the chairman was only "present" by telephone. 11 The plaintiffs say that they should have been given notice of the creditors' meetings. The defendants, apart from putting the plaintiffs to proof that they did not have notice of the meetings say that neither of the plaintiffs are creditors of the Company. They further say that should I find that there is a technical defect in what was done, s 1322(2) of the Corporations Law saves it. The plaintiffs deny that the section can be invoked, but say further that if that section is relevant at all, it is subsection (6) that applies, under which the onus is on the defendants to show that no substantial injustice would be caused by making a validating order. Of course, under subsection (2) the plaintiffs would have the onus of showing that injustice would be caused by the validation. 12 I will put the problems that might arise under s 1322 aside for a moment and concentrate on the first issue as to whether the plaintiffs should have been given notice of the creditors' meetings. 13 What is principally in issue is the meaning of the word "creditor" in s 497 of the Corporations Law. 14 Mr Justin Gleeson who appeared with Mr R A Dick for the plaintiffs put that although there is no definition of "creditor" in the Corporations Law, the true construction of the Law leads to the view that the term is used consistently within the winding up part of the Law and in associated sections as well. They submit that the only exception may be the use of the term in the recently added provisions dealing with statutory demands, particularly s 459H. 15 They put that this scenario is consistent with the policy set out in ss 109H and 109J of the Law as to the method of approach to the interpretation of the Law. 16 Mr Lindsay SC, Mr Whittle SC and Mr Dicker who appeared for the defendants denied that this was a proper approach. They submitted that the word "creditor" is a word that can have various shades of meaning in different circumstances. I will deal with the defendants' counsels' submissions in more detail later in these reasons. 17 The basal submission of the plaintiffs is that any person who has a debt payable by, or claim against, a company which is admissible to proof in the winding up of the company under s 553 of the Corporations Law is a creditor of the company. At least this is so, it is put, from the time that the company commences its winding up. A voluntary winding up commences on the date of the meeting of members which passes the appropriate resolution, in this case 10 am on 18 September 2000. Thus, at the time of the creditors' meeting, a person within the category is entitled to attend the creditors' meeting. Furthermore, once the Company is wound up, the matters set out in the cross claim in the Commercial List proceedings will have to be dealt with in the winding up by way of proof of debt. 18 Counsel for the plaintiffs submitted that this construction is consistent with the approach to who is a "creditor" in other areas of the Corporations Law. 19 Thus, for the purposes of Part 5.3A of the Law dealing with administration, a "creditor" is a person who has an arguable claim against a company even if the claim is unliquidated or contingent: see Petrochemical Industries Ltd v Dempster Nominees Pty Ltd (1995) 15 ACSR 468, 475-6, a case dealing with s 447B of the Law. Indeed the term "creditor" in Part 5.3A and Part 5.5 dealing with voluntary liquidation were equated in Brash Holdings Ltd v Katile Pty Ltd [1996] 1 VR 24, 32-3 and see Molit (No 55) Pty Ltd v Lam Soon Australia Pty Ltd (1996) 63 FCR 391, 400. 20 The same approach was taken in England where it had to be determined who was a creditor for the purposes of having status to apply to reinstate a dissolved company: see Re Harvest Lane Motor Bodies Ltd [1969] 1 Ch 457, 460, or, for the purpose of objecting to a reduction of capital: Re Telegraph Construction Co (1870) LR 10 Eq 384, 387-8. 21 To my mind, the most significant comparison is with the position regarding schemes of arrangement within s 411 of the Corporations Law. The view has been taken that the term "creditor" there includes every person having a pecuniary claim against the company, whether actual or contingent: In re Midland Coal Coke and Iron Co (Craig's Claim) [1895] 1 Ch 267, 277. As the English Court of Appeal said in that case, any other view would make schemes of arrangement useless. The whole idea of most schemes is to allow the company to bar all claims against it. For that reason all claimants must be barred. If a claimant is to be a creditor whose claim is barred, that claimant must also be considered to be a claimant who can attend the meeting and perhaps vote to the extent of a bona fide estimate of the worth of the claim. This approach has been consistently followed; see eg Re Glendale Land Development Ltd [1982] 2 NSWLR 563, 566 and Bond Corporation Holdings Ltd v Western Australia (1992) 7 ACSR 472, 477. 22 McPherson, The Law of Company Liquidation, 4th edition (LBC, 1999) at p 52 reinforces this approach. The learned author says that the only test of who is a creditor that appears workable is that laid down by Crossman J in Re North Bucks Furniture Depositories Ltd [1939] 2 All ER 549, 551 (the passage does not appear in the authorised report [1939] Ch 690, 693), that the term includes any person who has the right to prove in a winding up. At p 532 the author remarks that whilst the term "creditor" is not defined in the Law, "it appears to proceed throughout on the assumption that a person who is entitled to prove is a creditor for all the purposes of the liquidation". 23 Messrs Gleeson and Dick then put an argument which is not so readily acceptable. They put that it is appropriate to look to the regulations to ascertain the overall scheme of the legislation. They cite Brayson Motors Pty Ltd v Federal Commissioner of Taxation (1985) 156 CLR 651, 652. They then look at Regulation 5.6.23 which provides that a person with an unliquidated or contingent claim may vote at a creditors' meeting provided a just estimate of its value has been made. 24 During oral argument, another matter tending in the same direction was suggested by the plaintiffs' counsel. They submitted that the Corporations Law provides that directors need to be aware of the claims that are made on the company for the purpose of being able to make an annual declaration that the company's accounts show a true and fair view of the company's accounts, vide ss 294 (4) and (5) and 297 of the Corporations Law. The Law thus expects directors to have regard to the claims that are being made on the company and to value them realistically to show to those entitled true and fair accounts. When the directors have to consider whether they should propose that the company be wound up voluntarily they must once more assess the situation. Under s 494 the directors must assess whether they can make a declaration of solvency. This focuses their minds not only on liquidated claims against the company, but on all claims, liquidated, unliquidated and contingent. If they cannot make the declaration of solvency, any voluntary winding up must proceed as a creditors' voluntary winding up. 25 The defendants' counsel say that there is no such requirement. Directors need not focus on a declaration of solvency at all. They can proceed directly to a creditors' winding up. I am not at all sure that this is so, but assuming it is, it really does not affect the argument. The same people must be creditors in cases where the directors do so focus their minds and where they do not. A person whose claim has to be taken into account for the purpose of considering a declaration of solvency would logically appear to be a creditor if there is to be a creditors' voluntary winding up. 26 The submissions of counsel for the defendants put that there is no such general rule as to who is a creditor. First, they note that in Reuters Australia Pty Ltd v The Credit Connection Pty Ltd [2000] NSWSC 221 at para 21 I said that "one must always look at each particular Act" to see what the legislature meant by the word "creditor" in that Act. They say that in s 497 of the Corporations Law the word "creditor" is used in its primary sense to mean a person to whom the company owes a debt. They submit that the plaintiffs do not fall within this category. This is because the plaintiffs' claim in the cross claim in the Commercial List proceedings is denied and has not been adjudicated and, in any event will, if it succeeds, be set off against the verdict that the plaintiffs in the Commercial List proceedings will obtain. (Counsel kept reminding me that at one stage a Commercial List judge said that such claim was one of substance). Messrs Gleeson and Dick say that it is erroneous to assume that the plaintiffs will not succeed for more than obtained by the Company in the Commercial List proceedings. 27 The defendants' counsel say that whilst it is true that the term "creditor" may, in certain circumstances denote a person who, on reasonable grounds, claims to be a creditor as is the case under the Commercial Agents and Private Inquiry Agents Act 1963 in Reuters Australia Pty Ltd v The Credit Connection Pty Ltd [2000] NSWSC 221 at para 22, it often does not have that meaning. 28 Reliance is placed on the decision of Santow J in Roy Morgan Research Centre Pty Ltd v Wilson Market Research Pty Ltd (1996) 39 NSWLR 311, 321-2; 20 ASCR 108, 117-8 where his Honour held that a mere claimant in proceedings was not a contingent or prospective creditor who could apply for winding up under s 459P of the Corporations Law. 29 I considered that decision in Alati v Wei Sheung (2000) 34 ACSR 489, and noted at p 493 that in the light of Re Community Development Pty Ltd [1969] Qd R 1, 6 and the High Court's decision on appeal reported as Community Development Pty Ltd v Engwirda Construction Co Ltd (1969) 120 CLR 455 and Santow J's later decision in Mandarin International Developments Pty Ltd v Growthcorp (Aust) Pty Ltd (1998) 143 FLR 408, 422, the decision in Roy Morgan should not be taken too far. To this, Mr Lindsay SC put that my own words in Alati at para 17 were enough for his purposes, viz "if a debt is genuinely disputed and the dispute is yet to be dealt with on its merits, one cannot say that the person with the disputed debt is a creditor...". 30 The riposte of Messrs Gleeson and Dick was that either the cases under ss 459H and 459P of the Law were an exception or else they did not make any finding outside the strict point to which they were directed. In my view it is correct to isolate this line of cases to the strict point they decided and not apply their learning generally: this includes my statement in Alati. 31 The defendants then put a series of propositions which suggest that if the term "creditor" were given a wide meaning in s 497 of the Law, the provision would become unworkable. It would require the relevant executive organ of a company to make difficult and uncertain assessments which could erroneously either concede or deny status as a creditor and so lead to the upsetting of the subsequent decisions made at meetings of alleged creditors. 32 The defendants put that a creditor must be a person who can be identified with certainty. One only obtains this certainty if one defines a creditor for the purpose of s 497 of the Law as a person whose claims against the company have been quantified and are admitted by the company or are the subject of a judgment establishing the claimant's entitlements against the company. 33 The defendants then mounted substantial arguments based on set-off. Set-off as such has been abolished in New South Wales. However, the defendants submit that the basic principle might operate in two ways. First, in the Commercial List proceedings, the judge at the end of the day might set off any amount found due to the present plaintiffs against the amount found to be due to the plaintiffs in those proceedings. Secondly, the mutual set-off provisions of s 553C of the Corporations law must be examined. It is clear that any equitable set-off cannot affect the present case as even if there were equitable set-off, there would still be a debt at law so that NAB/NMG would be a creditor. 34 A basic problem with the argument about set-off in the Commercial List proceedings is that the damages claim of the Company does not appear to be quantified separately from the claim of its co-plaintiff. Secondly, there is no clarity as to how far the claims of the plaintiffs in the Commercial List proceedings are several or how far they are joint. Thirdly, there is no evidence apart from the fact that the total amounts of the claims are different and that a judge at some stage remarked that the claim had substance, to show that it is more likely than not that the plaintiffs in the Commercial List proceedings are more likely to be on the credit side of a set-off. 35 Thus, I must focus on the submission based on s 553C of the Corporations Law. 36 The defendants put that the object of s 553C of the Corporations Law is to do substantial justice between the parties (Forster v Wilson (1843) 12 M & W 191, 204; 152 ER 1165, 1171) and must be given the widest possible scope in operation (Day & Dent Constructions Pty Ltd (in liq) v North Australian Properties Pty Ltd (1982) 150 CLR 85, 108). 37 They submit that even if NAB and NMG had a valid claim, s 553C would operate so that such claims would be set off against the claim of the Company. 38 Again this submission has the defect that it assumes that at the end of the Commercial List proceedings there will be a balance in favour of the Company. There is no material to support that contention. Furthermore, there has been no apparent attempt by the directors of the Company or the second defendant, who is a professional liquidator, to make such an assessment. 39 Another problem with this submission is that it ignores the probability that the Company, or at least its co-plaintiff will probably wish to continue to pursue the Commercial List proceedings. Thus it is not a simple case of NAB/NMG submitting a proof of debt for the matter contained in their cross claim in the Commercial List proceedings, for the liquidator, after taking proper advice to value the claim, then for the liquidator to value the claim by the Company in the same way, and, if there is a balance in favour of NAB/NMG admitting the proof for the balance; see eg Stein v Blake [1995] 2 BCLC 94. 40 In my view, the submissions of the plaintiffs must prevail. Although there may be some difficulty in assessing who is a creditor and who is not, the Law requires company directors to act reasonably. They must make a reasonable assessment as to the liabilities of the company both annually and when they are considering winding up. They must not pretend someone is a creditor who is not. They must not also completely dismiss claims against the company merely because they are disputed, are unliquidated or are the subject of pending contested litigation. 41 In the instant case, the cross claims in the Commercial List proceedings are on foot. They are not, as far as I know, the subject of any strike out application. There is no evidence that the directors of the Company had them in mind at all when they sent out notices of the meetings to creditors. Their counsel say that there was justification in taking the position that the claim in the Commercial List proceedings would outweigh the result of the cross claim. They repeatedly said that Rolfe J had said that the claims in the Commercial List proceedings had substance. However, to my mind, where there is a company whose only other admitted debts amount to $133,000, there would be no sound reason for directors to take no cognisance at all of a claim for $31,000,000. Indeed, the directors have not given any evidence that there was any such sound reason or that they even directed their minds to the point. 42 The plaintiffs' counsel also put that there is a liability for costs on the Company which again would constitute NAB and NMG as creditors. However, the defendants' counsel put that any money payable by their clients under costs orders made to date to NAB and NMG will be set off with a balance in favour of their clients against cost orders in favour of their clients; cf Wentworth v Wentworth (Young J, unreported, 12 December 1994). I tend to think that the defendants' submissions are correct. However, as I have found on this point for the plaintiffs on other grounds, it is unnecessary to pursue it. 43 Thus, I find that the plaintiffs were creditors who should have been given notice of the creditors' meetings. 44 I should note that there was some suggestion that as the notice of meeting of creditors on 18 September 2000 was placed in the Sydney Morning Herald and as there was not sufficient evidence that no member of the staff of NAB had not read the Herald and seen the advertisement, I should not find that there was no notice of meeting in NAB. This is a rather desperate submission. However, it goes nowhere as the Law requires creditors to be notified of the meeting as well as requiring an advertisement in a newspaper. 45 I will come to the consequences of this finding after I have considered the impact of s 1322 of the Corporations Law. 46 So far as is relevant, s 1322 prescribes as follows: "(2) A proceeding under this Law is not invalidated because of any procedural irregularity unless the Court is of the opinion that the irregularity has caused or may cause substantial injustice that cannot be remedied by any order of the Court and by order declares the proceeding to be invalid. (3) A meeting held for the purposes of this Law, or a meeting notice of which is required to be given in accordance with the provisions of this Law, or any proceeding at such a meeting, is not invalidated only because of the accidental omission to give notice of the meeting or the non-receipt by any person of notice of the meeting, unless the Court, on the application of the person concerned, a person entitled to attend the meeting or the Commission, declares proceedings at the meeting to be void. (4) Subject to the following provisions of this section but without limiting the generality of any other provision of this Law, the Court may, on application by any interested person, make all or any of the following orders, either unconditionally or subject to such conditions as the Court imposes: (a) an order declaring that any act, matter or thing purporting to have been done, or any proceeding purporting to have been instituted or taken, under this Law or in relation to a corporation is not invalid by reason of any contravention of a provision of this Law or a provision of the constitution of a corporation; (b) an order directing the rectification of any register kept by the Commission under this Law; (c) an order relieving a person in whole or in part from any civil liability in respect of a contravention or failure of a kind referred to in paragraph (a); (d) an order extending the period for doing any act, matter or thing or instituting or taking any proceeding under this Law or in relation to a corporation (including an order extending a period where the period concerned ended before the application for the order was made) or abridging the period for doing such an act, matter or thing or instituting or taking such a proceeding; and may make such consequential or ancillary orders as the Court thinks fit.

… (6) The Court shall not make an order under this section unless it is satisfied: (a) in the case of an order referred to in paragraph (4)(a): (i) that the act, matter or thing, or the proceeding, referred to in that paragraph is essentially of a procedural nature; (ii) that the person or persons concerned in or party to the contravention or failure acted honestly; or (iii) that it is in the public interest that the order be made; (b) in the case of an order referred to in paragraph (4)(c) - that the person subject to the civil liability concerned acted honestly; and (c) in every case - that no substantial injustice has been or is likely to be caused to any person." 47 The defendants say that the facts of this case show a mere procedural irregularity which the Court must cure unless the plaintiffs demonstrate substantial injustice. The plaintiffs say that this case involves more than such an irregularity. They say that if s 1322 is to apply at all it must be subsection (4) which is invoked and the consequence is that under subsection (6), the defendants must show that there has not been substantial injustice. 48 In order to evaluate these submissions, it is necessary to consider the defects that have been uncovered. 49 The evidence shows that there were a series of defects in the procedure adopted by the defendants. 50 First, the members' meeting was not called in circumstances where 95% of the voting members agreed beforehand to shorten the 21 days' notice period (s 249H of the Corporations Law). The word "beforehand" which I have placed in italics is significant, it being a deliberate later addition to a section that was previously in a milder form. However, this probably is a mere procedural irregularity and may be passed over. 51 Secondly, the notices of the members' meeting and the notices of the creditors' meetings were not sent by post simultaneously as required by s 497(10) of the Law. By itself, this again might be classed as a procedural irregularity. 52 Thirdly, notices of the creditors' meetings were not sent to the plaintiffs. 53 The defendants' counsel say that this third defect is a procedural irregularity. They note that reference to a "proceeding" in section 1322(2) includes a notice of a meeting (s 1322(1)(a) and Australian Hydrocarbons NL v Green (1985) 10 ACLR 72). 54 They then refer to the words of Powell J in Re Broadway Motors Holdings Pty Ltd (in liq) (1986) 11 ACLR 495, 510, where that learned Judge said, following the decision of LW Street J in Holmes v Life Funds of Australia Ltd [1971] 1 NSWLR 860: "I conclude, therefore, that notwithstanding the failure to send notice of the extraordinary general meeting to Mr O'Connor, the meeting is prima facie to be regarded as having been validly convened, and the business transacted at it prima facie to be regarded as having been validly transacted." 55 This approach has been followed on many subsequent occasions; see eg Talbot v NRMA Holdings Ltd (1996) 21 ACSR 577. 56 The plaintiffs' counsel appear to acknowledge that there are cases where omission to give notice of meeting to a person who is entitled to attend a meeting may be a procedural irregularity. However, they say that there is more than a procedural irregularity here. The present case was a deliberate attempt not to notify the person who had the largest claim against the Company of the creditors' meetings. 57 In Re PW Saddington & Sons Pty Ltd (1990) 19 NSWLR 674, 675 I ruled that ordinarily a deliberate failure to give notice to a person entitled to notice of a meeting is more than a procedural irregularity. See also Electro Research International Pty Ltd v Stec (1996) 20 ACSR 320, 351. 58 Although there has not been wholesale acceptance of that decision, it is significant that, even if it is not adopted, Hodgson J in Mamouney v Soliman (1992) 9 ACSR 63, 72 said, "the more significant the resolutions passed at the meeting, and the greater the procedural defects, the more ready the court will be to say that they have caused or may cause substantial injustice." It is difficult to conceive a more serious resolution than one putting the company to death by voluntary liquidation. 59 The plaintiffs' counsel submit that, indeed, as there was no accidental omission to give notice of the meetings, the case may not come within s 1322 at all: see Re Compaction Systems Pty Ltd [1976] 2 NSWLR 477, 487-8 and Mitropoulos v Greek Orthodox Church and Community of Marrickville & District Ltd (1993) 10 ACSR 134, 137. 60 In my view, the plaintiffs' submissions are correct. However, in the light of the evidence, it really does not matter as the primary facts directed to the issue of whether there is substantial injustice are clear. 61 The law and practice in this type of case is succinctly stated by Robson in his Annotated Corporations Law, 5th ed (2000, LBC) at p 598-9: "Where there are no external creditors, considerable defects in the s 497 meeting may be overlooked or cured under s 1322… But if there are external creditors…then a creditor who is denied the opportunity to attend the meeting due to a contravention of s 497 (2) for example should be given another meeting, even if the purpose of that is only to vote for a different liquidator." 62 The principal authority cited is Re John Plunkett Consolidated Pty Ltd (No 2) (1977) 3 ACLR 285, which does indeed support the proposition. See also Mamouney v Soliman (1992) 9 ACSR 63, 74. 63 The defendants' counsel say that there can be no substantial injustice in NAB or NMG not attending the meetings for a number of reasons. First, the plaintiffs' claim would have to be valued under Regulation 5.6.23.2 of the Law and the value must be nil or a nominal amount in view of the fact that the claim is made in contested litigation against an opposing claim which has been held to have merit. A fortiori this is the position when set-off is taken into account. 64 The plaintiffs' riposte to this is that there has to be a "just estimate" made of its claim after it has submitted particulars to the chairman. One does not know how a fair and just chairman would assess the claim. They refer to Vincent, White & Associates Pty Ltd v Vouris (1998) 28 ACSR 93, 101. In any event, even if the plaintiffs could not vote, they say that they would still be entitled to address the meetings. It must also be remembered that the operative phrase in s 1322 is "may cause" substantial injustice or that "no substantial injustice is likely to be caused" which falls short of a requirement to demonstrate that substantial injustice has occurred: Mamouney v Soliman (1992) 9 ACSR 63, 74. 65 The defendants say that the right to address the meetings would not get the plaintiffs very far. The other creditors have definite ideas on the liquidation and they owe no fiduciary duties to deflect them from doing what they consider is in their own commercial interests. The plaintiffs may address the meetings and use all the logic and reason they like, but that will not affect the outcome of the meetings. 66 I believe that the thrust of that argument is fairly accurate. However, it must not conclusively be presumed to be correct. Even the most hardened shareholder may be affected by what the opposition puts forward. 67 However, the plaintiffs then say that they would have the opportunity of asking questions of the directors' representatives and the chairman regarding what appear to be more than rumours that the liquidation is part of a commercial deal in which an outside party is to fund the Commercial List proceedings on behalf of the Company in consideration for having a first claim on the proceeds of that litigation in a way that might operate unfairly to other creditors. In this regard, the plaintiffs say that the liquidator has an obligation to give proper information to creditors at such a meeting despite any considerations of confidentiality which might otherwise apply: see Re Movitor Pty Ltd (1996) 64 FCR 380, 394-5. 68 In my view it is a legitimate right of a creditor to ask such questions at a creditors' meeting and to press for a meaningful answer. The extent of that right or what might be done if the right is negatived by the conduct of the chairman or the majority has not been argued before me and I express no view on it. However, the Court should not assume that even a majority acting in its own interest or a chairman who is a professional liquidator would deny a creditor a legitimate right. In my view the loss of this right constitutes substantial injustice; a fortiori it is the case when coupled with the deprivation of the right to speak and even address on the question as to who should be the liquidator. 69 The defendants put that even if I was of the view that there was merit in the plaintiffs' case, I should not, in my discretion make any order. In particular, I should not do anything which might interfere with the smooth running of the Commercial List proceedings. 70 No real reasons were given to support this submission. I do not see any reason why in my discretion, I should not declare that the defendants' attempt to preclude the plaintiffs from participating in the creditors' meetings failed. As to the Commercial List proceedings, doubtless there will be some forensic advantage to the present plaintiffs by the result of these present proceedings, but I cannot see why that would make me decline to pronounce the appropriate orders in this suit. 71 Thus, the plaintiffs are in my view entitled to relief. 72 Clearly, for the above reasons, the creditors' meeting of 18 September 2000 was a nullity. The order made in Re John Plunkett Consolidated Pty Ltd (No 2) (1977) 3 ACLR 285 was that another meeting be held with appropriate orders under s 1322 to validate any necessary non-compliance with s 497. 73 The next question is whether there should be any other consequential orders. 74 In the light of what has happened, the directors are probably still in control of a company whose winding up has commenced. However, apart from executing the funding agreements, there is no apparent danger in this. 75 The plaintiffs seek an injunction to prevent the second defendant who is purporting to act as liquidator from carrying into effect the permission of the other creditors given at the purported creditors' meeting of 28 September 2000 to enter into a funding agreement which will extend beyond three months. There is certainly a threat to do so. Certainly such an agreement cannot be made without the sanction of the Court, a committee of inspection or a resolution of creditors, as it would endure beyond three months; see eg Buiscex Ltd v Panfida Foods Ltd (in liq) (1998) 28 ACSR 357. 76 It is difficult to see that the threat has any further currency. The second defendant is probably not the liquidator so that he has no power to enter into the agreements. There cannot be a resolution of creditors without the plaintiffs being notified. The purported meeting of creditors on 28 September 2000 must, of course, be invalid for this reason. There is thus probably no reason to grant such an injunction. 77 I think I should merely announce the decision and stand the matter over to tomorrow or next Monday for short minutes of order to be brought in by counsel for the plaintiffs. However, I will consider an injunction to protect the plaintiffs until then if need be. 78 I will hold the exhibits until the short minutes are brought in. Those short minutes should provide for the fate of the exhibits. Folder 10, containing the confidential documents will remain in my private chambers. ******************

National Australia Bank Ltd v Market Holdings Pty Ltd

At a glance

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Decision date

Before

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Judgment (9 paragraphs)

Parties

Cases Cited (11)

Cited By (2)